Any two out of three

Jan 1, 2010 by

“Psst…Hey, over here in the alley, you want a great deal on a genuine diamond bracelet?”

Are you tempted to buy?   Don’t be, it violates the three in three rule.   Quickly walk away.

A few years ago I was thinking about hiring a great singer for my daughter’s wedding reception – not rappers like Kanye West, or Lil Wayne, but someone to make everyone’s heart warm even years later just thinking about it.   Someone in the Sinatra mold would do, like Michael Buble, Josh Groban or Harry Connick, Jr.   Now I’m not a rich man, (in money anyway) so I had to think about what I had to negotiate with.

In all economic negotiations, there are three primary ingredients.   These are 1) quality, 2) time/location, and 3) price.   You can always get what you want if you only want one of the three, you will have a hard time if you demand to win in two of the three, and there is no chance that you will ever get all three out of three.   This is the three in three rule.   I’m surprised to find out that not everyone knows about this, and it seems to be a hard concept for certain people to accept.   Let me illustrate.

I really wanted to have Harry sing for Rachel’s reception.   That is a single ingredient.   To get him, I’d have to agree to his price and his schedule.

Now if I wanted him to sing at Isaac’s bachelor party and the rehearsal dinner as well, he would charge more, but he would still do it for the right price (much more!).   That is two of the three (quality and time).   If I wanted him to do it for $100, (quality, time, and price) there would be no deal, and I’d be lucky to leave the room with no injuries (oh, wait-that would have been Sinatra).

Say I wanted to have Harry sing for us for $100 and gave him the option of setting the time (that’s two of the three).   Being a gentleman, he would take my $100 and schedule an appointment for June 1, 2999.   You can’t fault him for his timing.

Now, if I wanted to negotiate a little harder, I could mention to Harry that I might be considering a competitor, like Mr. Groban.   Harry would readily admit that Groban is a great singer.   That would not change Harry’s price to me.   I could mention that Groban charges a little less.   No change.   I could mention that if Harry would meet my price on this wedding that I’d hire him for both my sons’ weddings (the lure of the quantity jackpot).   Nope-no deal.

The bottom line was that I could not afford to hire Harry to sing at Rachel’s wedding.   (Not to worry, we wound up using a cd player, the music was terrific, we danced and danced, and everyone had a fabulous time).

My point is that, in all economic transactions, you must play by the rules, and the rules say that two out of three is the very best you will do.

Years ago, I heard a story about a discussion between a rancher (of the all-hat and no-cattle variety) and a little feed store clerk.   The rancher wanted to buy two tons of oats for his horses, he wanted the oats delivered this week, and he wanted it at half the posted price.   He blustered, intimidated, and carried on until the browbeaten feed store clerk finally meekly admitted he figured out a way he could sell the oats to the rancher at half price.   The cowboy slapped his money on the counter, beamed at their little audience, and stomped out, proud of himself that he’d bested the timid clerk.   A week later, the store delivered two tons of manure to the ranch.   The irate rancher stormed into the feed store demanding to know what happened to his order of oats.   The clerk quietly replied that the rancher got his two tons of oats.   It was just that the price of fresh oats was twice the price of oats that had already gone through a horse.

At GEI, we sell professional expert services, which to borrow from the story, is to say, fresh oats.   This level of expertise is earned only by twenty to forty years of training and experience.   The doctor, dentist, engineer, and attorney have comparable levels of academic training, rigorous qualifying professional examinations, and career paths which require decades to master.   No one gets into the expert business quickly or easily.   These are not services that are interchangeable commodities like an oil change or a carwash.   Neither are they luxuries that we cut back on when times get harder. Professional services should only be used for very specific situations and only where great risk is involved.   Great risk may involve sickness, a lawsuit, or a complicated construction project.   You do not ignore great risk.   Great risk must be dealt with cautiously, carefully, and prudently.

If you have appendicitis, you need a doctor, not a do it yourself surgery manual.

If you are accused of murder, you need a great attorney, not just a bunch of Perry Mason reruns.

If you need to build an airplane, you need an engineer, not a pile of scrap iron.
Sometimes people who do not deal directly with experts think that they can shave a few percent off the professional services expense line of an operating statement, (particularly in the insurance industry).   Like the cowboy, they yell a lot, they threaten, they press hard, and they get their price reduction demands.   What they ignore (to their company’s peril), is that by getting concessions on cost, they still have to “Pay the Piper” in either time or quality concessions (usually both).

Their company’s great risk is not dealt with prudently.   You cannot cut price without also cutting quality.   It is a game of Russian Roulette, but most of the people who command cost cutting do not get shot.   In cases where an expert is indicated and not utilized, insurance claims are paid that should be denied.   Far more dollars are lost on fraud and improper claims than are spent on expert services.   Frontline managers (and then adjusters) get chewed on by the cowboys to minimize costs for the short term, and then in the long term, they get chewed on by the actuaries who built premium rate structures based on not paying every claim that walks in the front door.

To finish the analogy, the cowboy cost cutters get their way, but someone else has to deal with the remaining pile of manure.

Back to Harry-it is a comfort to me to know that by my masterful negotiating, I can still have him sing to me, at my price (two out of three).   I just have to agree to his time/place requirement (which is his next scheduled appearance at the convention center with 10,000 other people who have made a similar agreement).

The lesson to learn from the three in three rule is:

1 out of 3, always,

2 out of 3, sometimes,

and finally,

3 out of 3, never.

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